Finding the "Right" Price
Mar 05, · The right price is something different to the operations manager struggling to keep enough sales in the system to keep the production lines running. The right price is a moving target to marketing when they’re watching competitors all around them picking off their customers with an array of pricing options. Aug 01, · What is the Right Price? For suppliers, it's that level that maintains the supplier's margins while also meeting strategic business goals. For buyers, the price issue encompasses more than just the figure that winds up on the sales contract.
If something is priced right, then there is no need for a discount and you can close the most sales. The problem is what is the right price? Customers and salespeople alike will always see things differently. The right price takes on different values depending on where the salesperson is in relationship to making their quarterly numbers.
The right price is something different to the operations manager struggling to keep enough sales in the system to keep the production lines running.
If the customer feels the right price is less than what you normally sell at, then it should tell you the customer ia yet to understand the value of your product or service.
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How to Price Your Products
Nov 30, · The Right Price Too many new entrepreneurs harm their own prospects by under pricing their goods and services. But if those company owners just take the time to Author: Elizabeth Wasserman. Jun 29, · Her total cost came to $, and in order to keep the final price lower, she took just a x margin, bumping the wholesale price to $ (This means Stanley would earn $93 in . As an example, the current price of a stock is $40, the exercise price (or subscription price) is $35 and four rights are required to purchase a share. The theoretical value of the right is: ($40 -.
One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome.
However, there's no one surefire, formula-based approach that suits all types of products, businesses, or markets. Pricing your product usually involves considering certain key factors, including pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price.
The good news is you have a great deal of flexibility in how you set your prices. That's also the bad news. The following pages will detail how to meet your business goals in pricing products, what factors to consider when pricing, and how to determine whether or raise or lower your prices. That's why you own a business. Making money means generating enough revenue from selling your products so that you can not only cover your costs, but take a profit and perhaps expand your business.
The biggest mistake many businesses make is to believe that price alone drives sales. Your ability to sell is what drives sales and that means hiring the right sales people and adopting the right sales strategy. The Seiko is a better time piece. The difference is your ability to sell. There are two main pitfalls you can encounter - under pricing and over pricing.
Understand what you want out of your business when pricing your products. Aside from maximizing profits, it may be important for you to maximize market share with your product -- that may help you decrease your costs or it may result in what economists call "network effects," i. A great example of a product having network effect is Microsoft's Windows operating system.
When more people began to use Windows over rival products, more software developers made applications to run on that platform. You may also want your product to be known for its quality, rather than just being the cheapest on the market. If so, you may want to price your product higher to reflect the quality. During a downturn, you may have other business priorities, such as sheer survival, so you may want to price your products to recoup enough to keep your company in business.
The more you know about your customer, the better you'll be able to provide what they value and the more you'll be able to charge. This type of research can range from informal surveys of your existing customer base that you send out in e-mail along with promotions to the more extensive and potentially expensive research projects undertaken by third party consulting firms.
Market research firms can explore your market and segment your potential customers very granularly -- by demographics, by what they buy, by whether they are price sensitive, etc.. If you don't have a few thousand dollars to spend on market research, you might just look at consumers in terms of a few distinct groups -- the budget sensitive, the convenience centered, and those for whom status makes a difference.
Then figure out which segment you're targeting and price accordingly. Know Your Costs A fundamental tenet of pricing is that you need to cover your costs and then factor in a profit. That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Remember that the cost of a product is more than the literal cost of the item; it also includes overhead costs.
Overhead costs may include fixed costs like rent and variable costs like shipping or stocking fees. You must include these costs in your estimate of the real cost of your product.
X is your cost of raw materials, labor, rent, and everything it took to make the product so that if you sold it you would break even," advises Toftoy.
That may depend on your business. Restaurants overall make about 4 percent, which is pretty low. If you want 10 percent then you factor that into your costs and that is what you charge. A good rule of thumb is to make a spread sheet of all the costs you need to cover every month, which might include the following:. List the dollar amount for each on your spreadsheet. The total should give you a good idea of the gross revenues you will need to generate to ensure you cover all those costs.
Know Your Revenue Target You should also have a revenue target for how much of a profit you want your business to make. Take that revenue target, factor in your costs for producing, marketing, and selling your product and you can come up with a price per product that you want to charge. If you only have one product, this is a simple process.
Estimate the number of units of that product you expect to sell over the next year. Then divide your revenue target by the number of units you expect to sell and you have the price at which you need to sell your product in order to achieve your revenue and profit goals. If you have a number of different products, you need to allocate your overall revenue target by each product. Then do the same calculation to arrive at the price at which you need to sell each product in order to achieve your financial goals.
Know Your Competition It's also helpful to look at the competition -- after all, your customer most likely will, too. If so, you can use their pricing as an initial gauge," Willett suggests. If so, you may be able to support a higher price. Be cautious about regional differences and always consider your costs.
The key here is to compare net prices, not just the list or published price. This information could come from phone calls, secret shopping, published data, etc. Make notes during this process about how your company and products -- and the competition -- are perceived by the market. Be brutally honest in your evaluation. Know Where the Market Is Headed Clearly you can't be a soothsayer, but you can keep track of outside factors that will impact the demand for your product in the future.
These factors can range from something as simple as long-term weather patterns to laws that may impact future sales of your products. Also take into account your competitors and their actions. Will a competitor respond to your introduction of a new product on the market by engaging your business in a price war?
One size does not fit all. You can only go so far pricing all your products based on a fixed markup from cost. Your product price should vary depending on a number of factors including:.
In order to make this call one way or the other, you should first understand what's already working. Analyze the profitability of your existing products, so you can do more of what works and stop doing what doesn't work. You want to find out which of your existing products are making money and which are losing money. You may be surprised at how many of your products are losing money -- fix those ASAP. You should also constantly re-evaluate your costs.
To sell it right, you have to buy it right. If you are having a hard time selling a product at an acceptable profit, the problem may be that you are not buying the product right. It may be that your cost is too high rather than your price is too low. When to Raise Prices -- and How You should always be testing new prices, new offers, and new combinations of benefits and premiums to help you sell more of your product at a better price.
Test new offers each month. Raise the price and offer a new and unique bonus or special service for the customer. Measure the increase or decrease in the volume of the product you sell and the total gross profit dollars you generate.
It is a fact of life in business that you will have to raise prices from time to time as part of managing your business prudently. If you never raise your prices, you won't be in business for long. You have to constantly monitor your price and your cost so that you are both competitive in the market and you make the kind of money you deserve to make. If a price increase is too high, customers will react pretty quickly.
Also watching the competition can help - if you've made a positive change in prices; competitors are likely to follow suit. You don't want to alienate your existing customer base by raising prices too steeply, especially during a recession.
If the customer perceives that the firm's costs are going down while their price is going up. This will not be received well and is likely to backfire. You can always choose to discount your products or give customers something for free in order to get them to try your product or generate traffic to your storefront or website.
You can make Wednesday senior citizen day when seniors get a 20 percent discount. Then maybe you can offer a student discount day. Then all you're doing is keeping the price the same, but to those people you're giving them a cut but it's not like you've lowered all prices. It's not enough to look at overall profitability of your company every month.
You have to focus on the profitability or lack of profitability of every product you sell. You have to make absolutely sure you know the degree to which every product you sell is contributing to your goal of making money each month.
Remember: "People respect what you inspect. You owe it to yourself and to your business to be relentless in managing your product pricing. Remember, how you set the price of the products could be the difference between the success -- or failure -- of your business. The problem was getting readers to pay. What if he gave the content away? Tempted to cut prices?
You're not alone. The Price Is Right Setting prices has always been more art than science. New software aims to change that. The Right Price Too many new entrepreneurs harm their own prospects by under pricing their goods and services.